Although the amount of new capital that the new spot bitcoin exchange-traded funds (ETF) will draw is unknown, J.P. Morgan stated in a research paper on Thursday that substantial inflows of funds from other cryptocurrency products are anticipated.
According to the research, the market’s response to the U.S. Securities and Exchange Commission’s (SEC) grudging acceptance of spot Bitcoin (BTC) exchange-traded funds (ETFs) has been rather subdued. Instead, attention is now focused on the amount of capital that these new ETFs will attract.
The optimism that many market participants currently share that a significant amount of new capital will enter the crypto space as a result of the spot bitcoin ETF approval is unfounded, according to analysts under the leadership of Nikolaos Panigirtzoglou.
Even so, the bank observes a sizable rotation from its current cryptocurrency products into the recently established ETFs; as a result, even in the absence of fresh capital entering the market, the new ETFs may draw inflows of up to $36 billion.
The bank estimates that around $3 billion may leave the Grayscale Bitcoin Trust (GBTC) and move to the new spot ETFs as a result of investors profiting from their acquisitions of GBTC shares that were purchased at a discount in the secondary market during the previous year. It also expects up to $20 billion from regular investors shifting from digital wallets kept at crypto exchanges to the new ETFs.
The high fees charged by Grayscale may also be the cause of withdrawals. The bank stated that “a lot more capital, perhaps an additional $5 billion–$10 billion, could exit GBTC relatively quickly to migrate towards cheaper spot bitcoin ETFs” if Grayscale doesn’t cut its rates to the level set by Blackrock (BLK) and other providers.
The research also stated that institutional investors that hold their cryptocurrency in fund format may switch from GBTC and futures-based ETFs to less expensive spot ETFs, particularly if GBTC is reluctant to reduce its fees.